Industry Updates

Global macro dominates hedge fund returns and asset raising, while strong performing convertible arb continues to see outflows - Dow Jones Credit Suisse Hedge Fund Index

Tuesday, October 26, 2010

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Opalesque Industry Update - Currency fluctuations and rising gold prices helped drive much of the global macro gains during September, cites a newly released update from the team at Dow Jones Credit Suisse Hedge Fund Index. The strategy saw gains of +2.72% during the month (+9.3% YTD) and has also been a favorite for investors returning to the hedge fund markets.

The best performing global macro fund on the DJCSHFI logged gains of 27% during September.

“On a nominal basis, the Global Macro and Event Driven sectors [event driven rose 3.20% in September, +6.3% YTD] have experienced the highest asset flows year-to-date. In the third quarter, event driven surpassed all of the other sectors with $4bn in asset flows. Nevertheless, the Global Macro sector has far surpassed the others on a year-to-date basis with $11bn in inflows. This demonstrates the desire of investors to invest their assets in tactical strategies, which have historically been able to withstand more volatile market corrections.”

Convertible arbitrage
One strategy that is still struggling to gain back investor confidence in convertible arbitrage, which has thus far returned 7.5% this year, and that gained +47.3% during 2009. It is also the only strategy on the DJCSHFI that can claim positive returns for every month during 2010 for every manager listed in the index. So far this year the best performing convertible arbitrage fund listed on the index has returned 65.7% and the worst performing fund listed has been flat.

However, even with this strong showing during 2010, these managers continue to watch assets leave their space. Convertible arb saw outflows during 3Q2010 (although admittedly they have slowed from the previous quarter), as the industry in total saw net inflows of approximately $14bn. To note, the other two strategies that saw outflows during 3Q2010 were dedicated short bias and emerging markets.

There is some sense that convertible arb redemptions continue to be from funds that remain gated, and are only flowing back out to investors now. Investors also continue to be gun shy of the strategy, which was the second worst performer during the 2008 crisis (returning -32% that year).

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